Unemployment Hits 9.4%

The unemployment rate rose to 9.4 percent in May, its highest rate since July 1983, up from 8.9 percent in April:

WASHINGTON (Reuters) – U.S. employers cut 345,000 jobs last month, the fewest since September and far less than forecast, according to a government report on Friday that was the most definitive evidence the economy’s severe weakness was diminishing.

However, the Labor Department said the unemployment rate raced to 9.4 percent, the highest since a matching rate in July 1983, from 8.9 percent in April. This reading beat the peak in the jobless rate during the 1973-1975 recession that lasted 16 months.

But it was both a surge in new labor force entrants and a drop in employment that pushed the jobless rate up a half-percentage point. The May report showed a jump of 350,00 in the labor force. In April, the increase was just 120,000.

March and April’s job losses were revised down to show smaller declines of 652,000 and 504,000, respectively, meaning 82,000 fewer jobs were lost in those months than previously reported.

Two possibilities:

1) If we take these numbers at face value it means the recession peaked two months ago in March. That means the Democrats massive stimulus package wasn’t needed as only 5% of stimulus funds have been spent so far.

In other words we can recall the stimulus and start winding down programs like the mortgage refinance and the public private partnership for toxic assets, because they simply aren’t needed.

2) The numbers are misleading and we shouldn’t take them at face value… I suspect we’ll see a large uptick in new unemployment claims in June as public sector layoffs in California and in the auto industry start to gain traction.

I don’t think we’re anywhere near bottom yet… I suspect we’ll see unemployment well above 10% and U-6 above 20% before we hit bottom.